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Legal opinion on the economic and corporate assessment of a joint stock company.

The information we were provided with highlights the pursuit of an objective that does not seem to be in keeping with the intents of the M joint stock group.

Indeed, the methodology employed to carry out the "assessment" seems to be more fittingly applicable to a stock exchange evaluation project rather than to a company dissolution plan.

However, the use of such prospecting method is grounded on a technical notion, summarized as follows: C.& Partners have tried to determine the value of the company in a medium/long term prospect. The criteria used are in fact based on forecasts (hence presumptions) which in some cases go as far as 2014.

From an objective point of view, to think that one may be able to predict with a degree of accuracy a company?s cash flow for the next 10 years ? especially when such company deals in a market subject to major and constant evolution such as the electronics market ? appears to be arbitrary, at least, despite the fact that the said forecasts are based on past cash flow movements.

The assessment was carried out using two methods:

  • Market multiples
  • Discounted cash flows

These criteria are undoubtedly valid and are characterized by their potential to generate sufficient cash flows to remunerate prospective investors.

These methods are thus well suited to companies entering the stock exchange, as they need to show the market clear indications that investing on the company?s stock will be profitable enough (in terms of dividends) as to satisfy the investor.

On the contrary a like project is ill-suited for the assessment of a company that does not intend to access the external capital market.

It has, hence, the peculiarity of prescinding from the inherent value of the company, and is based mainly on the company?s capacity to yield a return on investment and maintain a consistent value in time.

In the logic of a stock exchange investor, what matters most is not identifying and establishing the actual value of a company (a non-consequential datum). What counts is for his investment to produce adequate profit (allow dividends), and that in time the stock?s listing will remain at least unaltered.

For these reasons it is appropriate to qualify the report as "assessment" and not as "in-depth analysis".

Nonetheless we tend to believe that an "in-depth analysis" would better suit a company that does not intend to enter into the capital market, but will pursue the objective of determining the real and current value of a company with all its branches.

In the process of an in-depth value analysis, different variables are taken into consideration, such as any possible added or detracted values of the company?s assets; if, for example, a company?s balance sheet shows items valued at a vile price (having been, for instance, redeemed from a lease), or a very low price (having been purchased long before), the evaluator shall consider the greater values according to market value.

However, an in-depth analysis, considered in its most narrow and technical connotation, can never prescind from a company?s goodwill (or in other words, from the company?s capacity to produce income). The value ? even of a single block of shares ? must be determined by the estimation of the company?s general goodwill.

Furthermore we need to note that the estimation of a company?s goodwill is typically based on forecasts that will rarely extend to a period longer than three years.

Consequently, a company?s value seems to be more suitably assessed through a mixed method incorporating both a patrimonial appraisal and an estimation of goodwill.

Clearly, by such methodology, a company?s value will be assessed at a much higher price than that expressed in the report drafted by C. & Partners.



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